Apple’s Chinese AI problem (perhaps) solved with Alibaba

Reflecting the erosion of universality, Apple Intelligence will now be coming to China, but rather than working with a US AI partner, the company will use Chinese-made AI tech from Alibaba.

According to The Information, Apple and Alibaba have already “submitted the co-developed features for approval to regulators.” The claim hasn’t yet been confirmed. If true, it would mean Alibaba’s Qwen model will replace OpenAI’s ChatGPT as the go-to third-party service integrated with Apple Intelligence for China.

Why does this matter?

Due to local regulations, Apple needs a Chinese partner to offer its AI services in China. It had been expected to work with Baidu, but chose not to do so. Deepseek was also considered, but as a small start-up there were concerns it would not scale to meet Apple-driven demand.

Achieving an AI deal in China is strategically important to Apple, as the lack of Apple Intelligence has quelled demand for its iPhones. Morgan Stanley analyst Erik Woodring told clients: “Our survey work shows that Chinese iPhone users are not only more interested in access to genAI technology than US or European iPhone owners, but over 50% of Chinese iPhone owners cited the staggered rollout of Apple Intelligence as having a moderate to significant impact on their decision not to upgrade to a new iPhone this cycle.”

Apple still maintains strong customer loyalty and relatively consistent switching rates, and government subsidies may help stimulate sales, Morgan Stanley said. 

The hope is that the introduction of Apple Intelligence (for China) will unleash pent-up demand for iPhone among Chinese consumers who might have delayed purchases pending this introduction.

So, when is Apple Intelligence coming to China?

News of the deal emerges just weeks before April, when Apple has already suggested it will introduce Simplified Chinese localization for Apple Intelligence. While both Apple and Alibaba must now gain regulatory approval for their plan, the signal within the smoke suggests a Q2 introduction of Chinese Apple Intelligence support. This could prove a shrewd move that might yet stimulate iPhone sales there — particularly with the introduction of the more affordable iPhone SE. 

Together, Apple could gain twin benefits — hardware sales and Apple Intelligence proliferation. Of course, the mass market AI that wins the platform wars will be the version people use, and Apple is likely optimistic that its huge and loyal user base will use its generative AI tools. 

Alibaba might be the first Chinese AI service supplier to gain integration on the iPhone, but perhaps not be the last. “Based on Apple’s broader rhetoric about providing users AI choice, we could also see a scenario where Apple creates an initial AI partnership with Alibaba that eventually expands to other local Chinese cloud players over time,” said Morgan Stanley in a client note.

Bugs in the lotion

One thing worth watching is the extent to which Apple is able to maintain privacy in China — will the company still offer private cloud servers for some tasks or offload all complex requests to its third-party partner? Will it limit the features it makes available to Chinese users? Or has it reached a deal with Chinese regulators in which the private services it does offer are seen to be relatively non-threatening?

Whatever the cut of the cloth, the seeming simplicity of Apple Intelligence masks numerous decisions around weft and weave, and not all of these will be evident on first glance.

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